Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 240 - 259)



  240. So you are saying you do not anticipate that this particular tax change will affect the status of the City of London as a major centre for international financial transactions?
  (Mr Gibbs) That is right, we certainly do not anticipate that.

  241. But that is not based on any consultation and that is not based on any feedback from the banks themselves because you say so far you have not had it?
  (Mr Gibbs) We have not had it yet but it is based on consultation with a number of other countries.

  242. With a number of other countries but not with the banks themselves.
  (Mr Gibbs) The international tax regime that applies—When tax is in the arena of international tax treaties the OECD leads consultation processes and there is a public consultation process at the OECD which the international banks are well aware of.

  243. What percentage of the total additional tax take in the Budget falls on the business sector, including of course the changes in NICs?
  (Mr Gibbs) I think the best way to look at it is to look at Table A.1, Pages 154-155. The first item is, of course, is the one you mentioned which is the NICs increase which accounts for £4.1 billion in 2004-05. Moving beyond that, there is a series of anti-avoidance measures which essentially fall on the non-tax compliant sector. They are identified mainly on the second of those pages as VAT anti-avoidance, where we are closing down three schemes and we are tackling stamp duty avoidance. Those, from recollection, amount to some £1.1 billion of anti-avoidance measures and then the balance of the measures between what are discretionary tax increases on the North Sea, on foreign branches and on the foreign exchange reform that I mentioned earlier, come to some £1.6 billion, which is roughly offset by the £1.6 billion tax reductions for a range of things, in particular, the capital gains reform and the R&D tax credit.

  Mr Cousins: I am trying to get a total, I am trying to get the net effect on the business sector. Would it be right to say that the total increase in tax take is over £4 billion by 2004-05?

Mr Fallon

  244. £5.2 billion.
  (Mr O'Donnell) Could I add —

Mr Cousins

  245. I am sorry, I am asking Mr Gibbs this question. Mr Gibbs has referred me to the table, I am looking at the table and I am asking Mr Gibbs to give me a figure.
  (Mr Gibbs) Well, the NICs measure amounts to just over £4 billion, there is £1 billion of anti-avoidance, and the rest net out.

Mr Fallon

  246. It is £5.2 billion.
  (Mr Gibbs) I would not put it at that because the anti-avoidance measures are essentially taxes being paid by quite clearly non-compliant taxpayers. They are essentially restoring the revenues to where they should have been had the avoidance not taken place.
  (Mr O'Donnell) Also, I have to say, it depends on the incidence. If you look at the NICs issue, who pays that? It might be paid by a corporate to start with but the ultimate incidence as to who bears it is an interesting question.

Mr Cousins

  247. Accurate, but I am not sure from your point of view entirely helpful. Just sticking to the business sector, we have got it then that the figure is over £5 billion by 2004-05?
  (Mr Gibbs) Only if you are prepared to count a raft of anti-avoidance measures which are simply restoring the tax take to where it should have been had some quite creative tax avoidance activity not taken place.

  Mr Cousins: Thank you.

Mr Laws

  248. Talking about creative tax avoidance, can I bring you on to tax relief for British films. Whose area is that?
  (Mr Gibbs) Mine again.

  249. Welcome back. This has been a bit of a shambles, has it not? This measure was bought in 1997 and was going to cost £15 million. Can you tell us how much without the anti-avoidance measures you are now planning the tax relief would cost in 2003-04 and 2004-05?
  (Mr Gibbs) No, I cannot because I do not have those numbers. I can tell you that the cost of relief is thought to have doubled between 2000 and 2001.

  250. I am sorry, you must know how much relief would have cost in the absence of anti-avoidance measures in 2003-04 and 2004-05. You have projected how much you are going to save by the restrictions you have put in place so you must have known what the underlying amount was.
  (Mr Gibbs) I am not pretending that we do not know that in a corporate Inland Revenue Treasury sense. I just do not have those figures in front of me, I have round figures for the cost of the relief.

  251. Mr Troup of Simmons & Simmons has suggested that it is of the order of £360 million now per year. Does that sound about right?
  (Mr Gibbs) In which year?

  252. 2003-04.
  (Mr Gibbs) I think it is likely to be rather more than that.

  253. More than that?
  (Mr Gibbs) £310 million is the Inland Revenue's current estimate of the cost of the relief in 2001 which is up on £140 million in the year 2000. That is a rapid rate of increase so I think if that rate of increase were to go on unchecked, without the changes we are proposing, we would expect the figure to be higher further out, but I do not have those figures, I am afraid.

  254. What has happened here? This has grown out of control and you have not regulated it in a proper way; is that right?
  (Mr Gibbs) What has happened here is that the relief has been based for simplicity to avoid complicating the tax law further, on the definition of a film which exists elsewhere in the law but which turns out to have loopholes in it which do not allow it to match up to what the intention of the relief was in the first place. In other words, television programmes can claim the relief.

  Mr Laws: I have with me an article which you have probably read in the FT this morning that says that relief has been used for programmes—and I have not seen any of these myself—such as Teachers, Shackleton, Bad Girls and you are concerned that it may have been used for Coronation Street —


  255. Somebody draw a halt, this is a family show!
  (Mr Gibbs) We have seen some reports as well and some other very good television programmes apparently have claimed the relief, but it was never the purpose of the relief to fund television, good, bad or otherwise.

Mr Laws

  256. Do you think Coronation Street has been able to claim it?
  (Mr Gibbs) I have read press reports that they have but I think that is probably taxpayer confidential.

  257. Is it conceiveable under the rules that they could?
  (Mr Gibbs) It is conceivable that a television programme could claim it. That is why we are tightening down on the relief.

  258. Why was this error made? Why was it structured in a way that allowed in a relatively easy way television companies to abuse it?
  (Mr Gibbs) It may not have been that easy because it has taken several years for it to happen to any significant degree. I cannot comment on precisely why it developed in that way in the first place other than there was a wish not to try and write into the tax law a separate definition of film when one already exists, but as the one which already exists does not work we are having to review it. This is an illustration of why it is not just an empty platitude to say we keep taxes under review. We do keep taxes under review, and this is the sort of thing that we do.

  259. You are closing your own loopholes basically. Can you tell us whether you have carried out a review of the economic value of this relief?
  (Mr Gibbs) I believe we have, yes, and I believe that was reflected in the decision to extend the relief a year ago.

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